Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, The American Prospect and The Washington Post. His most recent book, "The $800 Million Dollar Pill – The Truth Behind the Cost of New Drugs " (University of California Press, 2004) has won acclaim from critics for its treatment of the issues facing the health care system and the pharmaceutical industry in particular. Today he has something to say about a familiar topic : the relationship between public sector R&D investment and innovation in the pharmaceutical and biotech industries. You can read more pieces by Merrill at  Gooznews.com

The United States is the world leader in investing in biomedical
research and development. In the public sector, the National Institutes
of Health spent $28.6 billion in 2005, largely for basic science
research. The pharmaceutical industry spent an estimated $39 billion in
2004. This includes investment in the U.S. by U.S.-based firms,
investment overseas by U.S. firms, and foreign companies’ R&D
expenditures in the U.S. Indeed, over the past quarter century, the
private sector’s investment in the search for new medicines has grown
eight percent per year on average, faster than the industry’s growth in
sales and profits.

Despite this massive public and private effort, output, as measured
by the number of new drugs, biologics, vaccines and devices approved
for use by regulatory bodies like the U.S. Food and Drug
Administration, has slowed in recent years. Last year, the FDA approved
just 21 new drugs and biologics, the second lowest total since 1993.
Moreover, about half of these new drugs were not given priority status
by the FDA, which meant they were not considered a significant new
advance in medicine. This significance ratio has held steady for over a
decade. Clearly, the steady increase in private and public R&D
spending is generating diminishing returns, whether measured by return
on investment or public health.

This falloff in R&D productivity has occurred despite
extraordinary advances in the technology of drug discovery. The public
sector’s massive investment in basic science, mostly conducted at
universities, has uncovered the complex details of how cells work and
the chemical interactions of their constituent parts. A government-led
project decoded the human genome; scientists are rapidly identifying
the functions of the proteins that the genome produces; and, for over
30 years, we have had the bioengineering skills to reproduce those
proteins and monoclonal antibodies in mass quantities. We can use these
tools to identify the biochemical interactions of many diseases. This
in turn has given scientists hundreds of potential targets for drug
therapy.

To go after those targets, scientists have developed new tools like
mass screening and sophisticated bioassays affixed to computer chips to
identify potentially effective new drugs. Advances in biochemistry and
x-ray crystallography have given medicinal chemists the ability to
design and synthesize new drugs capable of affecting those targets
faster and more accurately than ever before. Finally, the drug industry
and government have financed and built an infrastructure for conducting
clinical trials that far surpasses what existed in previous eras.

So why is output slowing down? I would offer two simple hypotheses
for the decline in R&D productivity. First, the scientific drug
revolution pioneered by Europeans like Paul Erhlich and Gerhard Domagk
has evolved to the point where it is now a mature industry. In the past
century, scientists have developed drugs for most of mankind’s common
maladies. We can kill most of the microbes that invade our bodies. We
can control blood pressure, allergies, minor aches and pains, and acid
indigestion. We can cure a few cancers and prolong life for a few more.
We can give drugs to prevent some heart attacks. We have even
engineered a few proteins like recombinant human erythropoietin or
granulocyte-colony stimulating factor that are remarkably effective
because they replace factors that, when certain diseases strike, are no
longer produced in sufficient quantities by the body. And, for many of
these disease states, we are now on the second or third generation of
drugs.

In other words, the low-hanging fruit of medicinal chemistry has
been picked. To be an innovator today, you must discover cures for
chronic diseases like diabetes, most cancers, dementia (Alzheimer’s
disease), rheumatoid arthritis, and the other maladies of aging
societies. Will there ever be a pill to slow the aging process, or the
diseases that accompany aging? That is going to require a lot more
investment in basic research to understand the chemical cascades that
affect many of us as we age, and then a lot more research beyond that
to understand how we can safely intervene in the process. I wouldn’t
count on rapid success.

The second reason for declining productivity is that industry
R&D largely ignores areas where it is possible to have a tremendous
impact very quickly and where there is tremendous need: the neglected
diseases of the developing world. Industry does not seek the cures for
drug resistant tuberculosis, malaria, leishmaniasis, Chagas disease or
hookworm. It could spend its vast resources developing drugs and
vaccines for these conditions, but it doesn’t because there is no
market. It’s not that there aren’t billions of potential customers for
these treatments. It’s that those potential customers have very little
money. And when there is no discretionary income for medicine, there is
no drug market. This is a classic case of what economists call market
failure.

But rather than look for ways to artificially stimulate demand in
these needy countries (by lobbying for greater aid, for instance), the
drug industry instead devotes a substantial share of its R&D
budgets to developing new drugs in their existing market that are
nothing more than replacements for older drugs that are losing patent
protection. Upon occasion, they are superior to the older drugs. But
even when they are, it is usually not by much. This strategy may be
good for their bottom lines, but it provides a very small return for
public health.

In the years ahead, the greatest advances in biomedicine will come
from two arenas: greater investment in the basic science behind the
chronic diseases of aging; and concerted campaigns to develop drugs and
treat the infectious diseases that are ravaging the two-thirds of the
globe inhabited by poor people. Since the private sector is poorly
placed to tackle either problem, it will be the public and non-profit
sectors that will have to play the leading role.

To leap ahead in our efforts to come up with therapeutics for
chronic diseases of aging, governments will need to increase their
investment in basic science. Let’s take one example: the fight for a
cure for Alzheimer’s disease (AD). Great Britain’s National Institute
for Health and Clinical Excellence is under pressure from the two
companies that make cholinesterase inhibitors, including donepezil or
Aricept, to make them available for the early stages of the disease.
Yet the Cochrane Collaboration last year said that “there is little
evidence that donepezil improved cognitive function, and no evidence
that donepezil delays progression to AD.” Does this mean that the years
of basic and applied research that went into developing the
cholinesterase inhibitors was wasted? No. It only means that the
mechanism that they inhibit does not by itself halt the progression of
the disease.

To make progress against AD and other degenerative diseases of
aging, our governments need to step up targeted research. We must learn
so much about the natural history of this disease that drug developers
not only have targets, but have validated targets. This strategy has a
proven track record. The targeted research campaign that developed the
drugs that can now control HIV/AIDS was initiated and largely funded by
the U.S. government. Governments also need to rethink the global
intellectual property regime, which maximizes commercialization but in
its present form may be inhibiting the scientific collaboration crucial
to innovation by building walls of secrecy between researchers.

In the neglected diseases arena, non-profit drug developers like
Medicines for Malaria Venture, based in Geneva, One World Health, based
in San Francisco, and the Global Alliance for TB Drug Development,
based in New York, are blazing the trail to the future. Funded largely
by the Bill and Melinda Gates Foundation and other charitable
foundations, these organizations are not only developing drugs, but are
reaching intellectual property agreements that ensure that their
products will be affordable in the developing world if and when they
are developed. Since the private sector’s profit imperative prevents it
from tackling the world’s most pressing public health problems, this
emerging non-profit sector will have to step into the breach. And I’m
sure it will. Because as we’ve seen so many times before in medical
history, it is human needs and the tireless efforts of committed
scientists that drive pharmaceutical innovation, not private profit.

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